Post-Budget Reaction by Mr. Srinivasan, CFO- Ventureast

As the general consensus goes, this year’s Union Budget is indeed a growth- oriented budget, particularly for the PE/VC investor community and start-up ecosystem in India.

The Permanent Establishment Safe Harbour provides a sense of comfort to fund managers for choosing India as the base for investment managers. It means that fund management activity undertaken in India by an eligible fund manager on behalf of an eligible offshore fund will not trigger business income taxation for the offshore fund in India. However, there is a qualifying provision that the overseas fund should have a minimum of 25 members, which would be challenging for a fund which have limited institutional investors.

Two encouraging points are that Minimum Alternative Tax (MAT) will not apply to foreign investors and the General Anti-Avoidance Rules (GAAR) applicability has been deferred by two years. Further, the reduction in corporate tax by 5% over 4 years, will be welcomed by startups. But on the flip side, service tax has been increased from 12.36% to 14% which will put additional pressure on services providers.